david oliveiri basic business law bpp432/80 basic business law (bpp432/80) 2007 fall quarter...
TRANSCRIPT
David OliveiriBasic Business Law BPP432/80
Basic Business Law (BPP432/80) 2007 Fall Quarter
Syllabus Review – Our Contract!!
David Oliveiri
David OliveiriBasic Business Law BPP432/80
Logistics Course: Basic Business Law (BPP 432/80) -- 2007 Fall
Quarter
Time: 5:50-8:50PM Thursdays (except 9/18 and 11/20)
Me: David Oliveiri, Office: CS4-110E, Phone: x55144, E-Mail: [email protected]
My Assistant: Pamela Bamann (x52246; CS-3-211A)
Text: Smith & Roberson’s Business Law, Mann & Roberts, 13th Edition (Thomson/West, 2006); ISBN 0-324-20486-8
Course Web-Site: http://simonexchange.rochester.edu
David OliveiriBasic Business Law BPP432/80
Course Objectives
• To develop familiarity with selected laws, regulations, legal principles, and legal processes that govern (a) efficient exchange, generally; and (b) how and in what ways managers and entrepreneurs organize and interact to facilitate exchange.
• Law of “Contracts,” “Agency,” “Business Associations.”• Emphasis on United States Law; But…• Emphasis on Spirit or Intent of Law
• To understand and appreciate the constraints, risks, and opportunities that the legal environment provides to business managers and entrepreneurs.
• Transactional Focus• Managerial Decision-Making in a Legal Environment• Business Risk Management, “Bargain-Arounds,” Commercial Rights and
Responsibilities … Business Valuation
David OliveiriBasic Business Law BPP432/80
Letter from Business Supplier:
“I’m changing our Existing Agreement by revising
the due dates of my deliveries, price you will pay for
deliveries, when your payments are due, the penalties you
will incur if payments are late, and how partial payments
are to be applied to what you owe me.
Best Regards, …”
David OliveiriBasic Business Law BPP432/80
Law and the Credit Card Industry
David Oliveiri
The Changes: We are changing your Card
Agreement by revising the provisions concerning
the default rate, promotional offers, periodic
finance charges, minimum due, and application of
payments to the minimum due.
David OliveiriBasic Business Law BPP432/80
Law and the Credit Card Industry
State “Usury” Rates – Legislative Ceiling on Interest Rates.
1980 Citibank “Squeeze” -- New York State Usury Laws and Double-Digit Inflation Rates -- "You are lending money at 12% and paying 20%..."
1978 US Supreme Court Decision (Marquette National Bank v. First of Omaha Service Corp.) – “National banks only have to obey the interest-rate caps of the state they are chartered in, not that of the state where a bank's customer lives.”
South Dakota Legislature Eliminated Usury Ceiling – Revenue Measure.
David OliveiriBasic Business Law BPP432/80
Law and the Credit Card Industry
David OliveiriBasic Business Law BPP432/80
Default Rate: All your annual percentage rates (APR’s) may increase if you default under any Card Agreement that you have with us because you fail to make a payment to us when due, you exceed your credit line, or you make a payment to us that is not honored. In these circumstances, we may automatically increase your APRs (including any promotional APRs) on all balances to the Default APR, which equals the Prime Rate plus up to 22.1 5%. As of September 1, 2006, the Default ANNUAL PERCENTAGE RATE is 30.40%. Which corresponds to a daily periodic rate of 0.0833%.
David OliveiriBasic Business Law BPP432/80
Right to Opt Out: To opt out of these changes, you must write us by November 30, 2006, indicating that you are opting out. Write us at Citibank. c/o Customer Service,1 Center, P.O. Box 45147, Jacksonville, Florida, 32232-5147, and include your name, address, and account number. If you notify us by that time that you do not accept these changes, your account will be closed and you may pay off the balance of your account under the current terms. However, use of your card after the effective date of these changes is deemed acceptance of the changes even if you have notified us that you do not wish to accept the charges.
David OliveiriBasic Business Law BPP432/80
Effective October 1, 2006, Citibank (South
Dakota), N.A. will be the issuer of your account.
From that date, the words "we, us, and our" as
used in your Card Agreement will refer to
Citibank (South Dakota), N.A.
David OliveiriBasic Business Law BPP432/80
Evaluation of Performance
Midterm Examination (10/18) 33 1/3%
Cumulative Final 33 1/3%
Participation (Team-Based + Individual) 33 1/3%
David OliveiriBasic Business Law BPP432/80
Learning Approach – Typical Class
Pre-Read (Assignments in Outline; Supplementary Readings) Handouts for Week Lecture (Non-Exhaustive; Lecture Slides/Outlines Distributed) Self-Tests/Selected End-of-Chapter Problems (Answers
Distributed) Team-Based Presentations (Graded, Beginning 10/4)
– 2 per Quarter– Assigned Teams (by September 27)– Grading Criteria: (1) Quality of Analysis and Issue Identification;
(2) Specificity and Clarity of Recommendations; and (3) Credibility and Persuasiveness
– All Team Members Graded Equally; Exception: Free Rider Petition
Active Class Participation Essential!
David OliveiriBasic Business Law BPP432/80
Tests
Midterm Exam 10/18; Final Exam Period 12/3 - 12/8
Open-Book, Open Notes
“Non-Cumulative” Final
Format -- Short-Answer
“Unless previously arranged and fully agreed to by the instructor (generally, due to extreme uncontrollable circumstances), failure to attend or take the Midterm or Final at its assigned time will result in a grade of 0 for that particular grade component.”
Exam-Taking Success Strategies For Basic Business Law
David OliveiriBasic Business Law BPP432/80
Outline
Week Topic Reading
1. (9/18: 7:10-8:30PM; What is Law? Effective Decision-Making S&R 1, 2, 3
9/20) in a Legal Environment
{Class Exercises on What is Law;
Effective Decision-Making}
2. (9/27) Facilitating Exchange; S&R 9, 10
Value of Contracts; Creating Enforceable
Rights -- Mutual Assent Requirement
… + Supplementary Readings
David OliveiriBasic Business Law BPP432/80
Success Strategy for Basic Business Law
Spot Issues Among Complex Commercial Facts
Identify Pertinent Areas of Law That Impact Business Goals, Results
Clear Thought/Statement/Concision to Define Risks, Compliance Costs, “Bargain-Arounds,” Opportunities
David OliveiriBasic Business Law BPP432/80
Basic Business Law (BPP432/80) 2007 Fall Quarter
Instructor: David Oliveiri
Week 1: What is Law? Effective
Decision-Making in a Legal Environment?
David OliveiriBasic Business Law BPP432/80
Agenda
The Big Picture
What is Law?
What Law Applies?
The Lawmaking Process
Managerial Implications
Summary; Q&A
David OliveiriBasic Business Law BPP432/80
The Intersection of Law & Business
Yahoo! is an internet service provider with a principal place of
business in Santa Clara, California.
David OliveiriBasic Business Law BPP432/80
The Intersection of Law & Business
Yahoo! is an internet service provider with a principal place of business in Santa Clara, California.
Its American website, www.yahoo.com, targets US users and provides many services including auction sites, message boards, and chat rooms, for which Yahoo! users supply much of the content.
Nazi discussions have occurred in Yahoo!’s chat rooms and Nazi-related paraphernalia have appeared for sale on its auction website.
David OliveiriBasic Business Law BPP432/80
Section R645-2 of the French Criminal Code bans exhibition of Nazi propaganda for sale and prohibits French citizens from purchasing or possessing such material.
Although a Yahoo! Subsidiary, Yahoo! France, operates www.yahoo.fr in France and removes all Nazi material from its site to comport with French law, French users can still access the American Yahoo! Website that carries Nazi-related discussions and auction items.
The Intersection of Law & Business
David OliveiriBasic Business Law BPP432/80
In April 2000, LICRA and UEJF (two French associations) discovered that they could access www.yahoo.com in France and view Nazi materials.
On May 22, 2000 a French court, at the request of LICRA and UEJF, issued an order requiring Yahoo!—subject to a fine of 100,000 Francs (approximately $13,300) per day—to prohibit access to Nazi artifacts on its site and to warn that viewing such material violates French law.
The Intersection of Law & Business
David OliveiriBasic Business Law BPP432/80
How Does this Situation Affect Yahoo?
Status Quo — Prior to French Litigation No Care “Yahoo” Care
No Care -100,0 -100,-10
“French Public”
Care -110,0 -20,-10
•No Cooperation
•Cost of Care (i.e., Filtering Content) = 10
•Cost of “Injury” = 100
•Probability of Injury Given 2-Party Care = 10%
David OliveiriBasic Business Law BPP432/80
Effect of French Court’s Holding
New Status Quo – Imposition of a Rule
No Care “Yahoo” Care
No Care -100,0 -100,-10
“French Public”
Care -10,-100 -20,-10
Results: 1. Shifts Costs
2. Influences Future Behavior
3. Barrier to Entry?
David OliveiriBasic Business Law BPP432/80
Learnings
Understand What Law Is/Where It Comes From
Understand What Particular Laws Apply to Transactions/ Business Activities
Understand Nature and Role of Lawmaking
Understand Why Law is Important to Business Managers
Understand How Business Managers Make Effective Business Decisions in a Legal Environment
David OliveiriBasic Business Law BPP432/80
Some Perspective: A Big Picture
Business EnvironmentTechnology
ComputersTelecommunicationsProduction Methods
Markets Competitors Customers Supplies
Regulation Taxes Antitrust International
Business StrategyAsset StructureCustomer base
Nature of knowledge creation
Organizational ArchitectureDecision-right assignment
Reward systemPerformance-evaluation system
Incentives and Actions
Firm Value
Source: Managerial Economics and Organizational Architecture, Brickley, Smith, Zimmerman
David OliveiriBasic Business Law BPP432/80
What Isn’t Law? Example: Bausch & Lomb ReNu MoistureLoc Timeline
4/10/06: FDA and CDC issue public health alerts about Fusarium keratitis and a link to ReNu MoistureLoc solution
4/21/06: FDA and CDC announce investigation of B&L’s Greenvilleplant
4/27/06: Wall Street Journal reportsBausch & Lomb knew about Fusarium infections in Hong Kong in November 2005
David OliveiriBasic Business Law BPP432/80
What Isn’t Law? Morals?
– Wall Street Journal 5/16/06 – “Bausch & Lomb issued a worldwide recall of its ReNu with MoistureLoc contact-lens solution.” Annual MoistureLoc Sales = $100 Million; Recall Cost = $50-75 Million
Ethics?– Bausch & Lomb Web Site – “The health and safety of your eyes has always
been our first priority.”
Law?• Potential Product Liability of $.5-1 Billion. “After thousands of tests, there is
no evidence of MoistureLoc contamination, tampering, or counterfeiting. That leads us to believe that there may be some aspect of the MoistureLoc formula, when combined with certain environmental factors, lens wear and care practices, and other factors, that might increase the risk of Fusarium infection in rare circumstances.”
The “Complication” of Stakeholders– Wall Street Journal 5/16/06 – “…the company’s stock rallied [up 13%],
reflecting investors’ confidence that its explanation would put the matter to rest, and that other Bausch solutions may not have the same problem.”
David OliveiriBasic Business Law BPP432/80
Law and Morals
“ThouShalt Not Kill”
“You must driveOn the right sideOf the road”
“You should notSilently stand by andWatch a blind manWalk off a cliff”
Source: Smith and Roberson’s Business Law, Mann & Roberts (Thomson/Southwestern, 13 th Ed. 2006)
David OliveiriBasic Business Law BPP432/80
Law and Morals
“Don’tMarketDefective Products”
Court X: “Strict Product Liability of ABC Corp. For Product Y”
“You should notsilently stand by andwatch a customer hurt herself with your product”
David OliveiriBasic Business Law BPP432/80
Stakeholder Model of Business
Corporation
Managers
Employee
s
Community
Stockholders
Suppliers
Customers
Source: Smith and Roberson’s Business Law, Mann & Roberts (Thomson/Southwestern, 13th Ed. 2006)
David OliveiriBasic Business Law BPP432/80
What is Law/Who Makes Law?
Constitution The US
Constitution imposes limits on the way managers can do business in
the US? [Art I, Sec. 8-” Congress
shall have power …To regulate
Commerce with foreign Nations,
and among several states…]
David OliveiriBasic Business Law BPP432/80
Spending Uncle Sam's Money
By
T. Dart Walker(1869 - 1914)
David OliveiriBasic Business Law BPP432/80
David OliveiriBasic Business Law BPP432/80
What is Law/Who Makes Law?
Sarbanes-Oxley
Securities Act of ’34 -- SEC – Regs
New York’s General Obligations Law
PATRIOT ACT “Banking” Regulations…
Legislation/Statutes (Administrative Agencies/ Regulations)
David OliveiriBasic Business Law BPP432/80
Court Decisions Precedent/”Stare Decisis” or “Let the Decision
Stand”
– A lower court in a state must always follow the decisions of a higher state court in its jurisdiction?
– A California Supreme Court decision must be followed by a trial-level court in Las Vegas?
Common Law “Database”
– An 1864 decision by a court on a particular matter is still good law?
What is Law/Who Makes Law?
David OliveiriBasic Business Law BPP432/80
What is Law?/Other Considerations
Private Models (Uniform Commercial Code, Other Uniform Laws) – “Statutes-in-Waiting”
International Legal Context– Common Law – UK, Australia, Canada, US
– Code-Based Systems – Western Europe; Roman Influences
– Socialist Systems – Russia, Eastern Europe
– Religion-Based Systems – Middle East
David OliveiriBasic Business Law BPP432/80
What is Law?Bottom Lines
Law = C + S + R + D
C > S > R > D
Subject To…D Interpreting C,S,R
David OliveiriBasic Business Law BPP432/80
What Law Applies to a Particular Situation?
--Two Simon alums (Texas and Virginia)
--A drink in New York City
--Internet kiosks in California coffee houses
--Each agrees to invest $35,000
--Cocktail napkin contract; both sign
THEN, One alum refuses to proceed with the deal.
What Law Applies? C, S, R, D of United States, Texas, Virginia, New York, and/or California?
What Law Applies = f (Place, Type of Conduct, Hierarchy, Intent?)
When Does This Even Matter?
David OliveiriBasic Business Law BPP432/80
What Law Applies? Geographic Sources of Law
(C, S, R, D) – United States
David OliveiriBasic Business Law BPP432/80
A Court Won’t Entertain Dispute Unless
It Has … Jurisdiction
Jurisdiction
Parties Subject Matter
In rem Personal Quasi in rem
State Concurrent Federal
Source: Smith and Roberson’s Business Law, Mann & Roberts (Thomson/Southwestern, 13th Ed. 2006)
David OliveiriBasic Business Law BPP432/80
Subject Matter Jurisdiction – The Types of Disputes Particular Courts
Can Entertain
Exclusive Federal Jurisdiction1. Federal crimes2. Bankruptcy3. Patents4. Copyright and trademarks5. Admiralty6. Antitrust7. Suits against the United
States8. Specified Federal statutes
Concurrent Jurisdiction1. Federal questions2. Diversity of Citizenship
Exclusive StateJurisdiction;EverythingElse
FederalMatters
Source: Smith and Roberson’s Business Law, Mann & Roberts (Thomson/Southwestern, 13th Ed. 2006)
David OliveiriBasic Business Law BPP432/80
Role of Lawsuits (Or Threat of Lawsuits)
Adjudicate Disputes
Confer Rights
Enforce Rights
Lawsuits (or Threat of Lawsuits) = Mechanism to Apply Law = f (Jurisdiction, C>S>R>D, Interpretation, Validity)
David OliveiriBasic Business Law BPP432/80
Mechanisms of Legal System–Lawsuits and Lawmaking
Judicial Lawmaking : Lawsuits = Disputes, Disputes = Facts + Law
– Stages - Summons/Complaint, Answer, Discovery, Motions, Pretrial Conference, Trial, Appeal
– Written Opinions of Court = Common Law– Decision “Philosophies” of Judges -- Rights-Based
Justice, Distributive Justice, Economic Efficiency
Non-Judicial Lawmaking = Statutes, Regulations, To Address “Public” Issues
– Supply = Politicians and Political Process– Demand = Special Interests
END RESULT: LAW
David OliveiriBasic Business Law BPP432/80
Why is Law and Lawmaking Important to Business
Managers?
Legal Rules Define Enforceable Rights for Deal-Making, Conduct of Business
– Legal Rules Minimize Information Costs!– Legal Rules Minimize Transaction Costs!– And …”Inefficient” Legal Rules May Provide a Predictable “Starting
Point for Bargains”
Law Impacts Enterprise Value– Threats of VIOXX, Bausch & Lomb MoistureLoc Lawsuits?– EEOC, EPA, SEC Investigations?– The role of Due Diligence and Purchase Agreement Warranties and
Representations in Corporate Mergers and Acquisitions
Criminal Liability
David OliveiriBasic Business Law BPP432/80
Managerial Analysis of Legal Issues
“Legal Issues” = Disputes, Transactions, Activities
Litigation Example: Decisions to Sue
– Expected Value Test (Positive Expected Value => Sue; Negative Expected Value => Do Not Sue)
– EV = NPV Recovery – NPV Cost
– EV = f (timing, probabilities, cash flows); In US, Each Party Pays Their Own Costs!
– Impact of Asymmetric or Complete Information
David OliveiriBasic Business Law BPP432/80
But Only A Very Small Percentage of Cases
Go To Trial!
David OliveiriBasic Business Law BPP432/80
Managerial Analysis of Legal Issues
Litigation Example: Decisions to Settle– Once Again, Expected Value Test
– But … No Positive Expected Value Choice, Generally; So, Minimize Expected Loss
– => Settle When Expected Value of Settlement is Greater Than Expected Value of Defending Lawsuit!
– Game Theory Issue: Would You Ever Settle a Frivolous Lawsuit?
Suppose it costs a disreputable customer of your business $500 to file a frivolous lawsuit that seeks $50,000 in damages, and it costs you $1000 to employ a lawyer and respond to the complaint by formal answer or motion. Suppose further that if you ignore the lawsuit and do not respond you will suffer a default judgment in the amount of $50,000! Would you be willing to settle even though you know that the suit is frivolous and that the plaintiff will drop the suit if you make a formal response? Does your business strategy (and answer) change if all of your customers have complete information?
David OliveiriBasic Business Law BPP432/80
Advanced Applications
Decision TreesYou have just received a letter from customer’s lawyer, threatening to sue your company for a million dollars in damages resulting from the malfunction of your company’s product. You are trying to decide whether to defend the lawsuit vigorously or settle. The customer’s lawyer has offered to settle for $600,000 if you accept this offer within 48 hours. After that, there will be no further settlement discussion. You learn from your lawyer that it would cost $100,000 to defend this action thru trial and that you have a 30% chance of winning (i.e. avoiding liability). On the other hand, there is a 50% chance that a jury will award the plaintiff a million dollars in damages, and a 20% chance that you will convince a jury that you are responsible for no more than $300,000 in damages. Should you settle or go to trial, assuming there are no game theory issues with settlement?
David OliveiriBasic Business Law BPP432/80
Decision Trees
Litigate: TrialCost-$100k
Settle; -$600k
Win (+$0);30% chance
Lose Big (-$1,000k);50% chance
Lose Small (-$300k);20% chance
Note: The probabilities ofall uncertain outcomes mustAdd up to 100%
David OliveiriBasic Business Law BPP432/80
Litigate: TrialCost-$100k
Settle; -$600k
Win; $0 EV
Lose Big; -$500k EV
Lose Small; -$60k EV
Note: To calculate ExpectedValues, work backward (right-toleft) in a decision tree
-$660 EV
-$600 EV
Decision Trees
David OliveiriBasic Business Law BPP432/80
Advanced Application: Game Theory
Thelma and Louise are executives of Endrun Corp. They have been involved in a pattern of securities laws violations for some time. Today, both Thelma and Louise have been arrested on warrants obtained by the local federal prosecutor. They are being held in separate cells, and are not allowed to communicate with each other. The federal prosecutor meets with Thelma and Louise separately and makes the following offer to each of them:
– “Confess and Cooperate with us! If your testimony helps us convict your partner in crime and get a 10 year sentence for her, we will recommend a one year sentence for you.”
– “We will offer the same deal to your partner! If you don’t confess, and your partner testifies against you and helps us get a conviction, you’ll get 10 years.”
– “If you and your partner both confess, the best I can do is get you a 5 year sentence.”
Thelma and Louise are unable to communicate with each other. But they know that if neither of them decides to help the federal prosecutor, it is likely that they will be convicted of a lesser crime and get 3 year sentences. What will Thelma and Louise do?
David OliveiriBasic Business Law BPP432/80
Thelma’s Choices
Confess Silence
Confess
Silence
Louise’s Choices5, 5 1, 10
10, 1 3, 3
Advanced Application: Game Theory
David OliveiriBasic Business Law BPP432/80
Thelma/Louise Applications
David OliveiriBasic Business Law BPP432/80
Summary/Q & A
Law and Lawmaking are Important to Business
Law and Lawmaking Affect Business Rights, Behavior, and Value
“Law” Comes From Multiple Sources – A Vast Matrix (50 states, 13 Federal Circuits, ? Countries)
Law and Ethics Are Not The Same Thing; But Each Affect Business Value
Law, Lawsuits (Actual or Potential), and Lawmaking Help Businesses Order Affairs
Business Managers Use Specific Tools to Make Decisions in a Legal Environment
Yahoo?